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The benefits of finance and accounting outsourcing for life sciences

INSIGHT ARTICLE
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April 05, 2016

Michael Romano

Life sciences companies have outsourced key operational and production functions for decades. However, growing organizations are increasingly implementing finance and accounting outsourcing (FAO) strategies to access more effective tools and experienced resources then they may have access to internally. The strategy helps organizations strengthen the finance function, while allowing company employees to focus on their core competencies of innovation, drug development and brand management.

Few industries are more accustomed with outsourcing than life sciences, as companies have outsourced clinical trials management for more than 20 years, and drugs are rarely developed without input from an outsourced provider. Typically, early-stage companies are more aggressive with outsourcing, developing relationships with third parties to manage functions, such as contract manufacturing, sales and most recently, the finance and accounting function.

The FAO framework is a very flexible approach, with services designed to fit a wide range of finance and accounting needs for life sciences companies. Many companies retain a senior-level finance executive or CFO in-house to focus on investor relations, raise capital and manage strategic initiatives, while leveraging an FAO provider for financial accounting and reporting, maintaining books and records and associated GAAP issues. Alternatively, an FAO provider can also provide senior-level support, in addition to more traditional accounting services.

Many midmarket and emerging companies utilize spreadsheets or highly inefficient tools and processes for finance and accounting functions, such as time and expense reporting or closing the books. However, FAO providers give companies access to emerging technology solutions and cloud platforms that increase efficiency and security. Outsourcing providers commonly leverage cloud-based bill paying, accounting, time and expense and reconciliation tools to enhance key functions across the organization, as well as increasing compliance and financial reporting capabilities.

One key benefit outsourcing provides for life sciences companies is solving personnel challenges. Full-time resources are expensive, especially for early-stage companies, where cash flow may be sparse. For example, to attract a top-tier CFO, a company may have to consider an equity and cash combination to attract and retain that talent. That may not be a desired framework for company leadership, given the potential for growth.

In addition, finance and accounting issues and challenges change rapidly, as early-stage life sciences companies evolve. The decision about when a company needs full-time talent and when to leverage outsourcing is a key one in the growth of the company. FAO provides fractional employees, such as a piece of a CFO, accounts receivable clerk, accounts payable clerk, controller or accounting manager to deploy the right resources at the right time, allowing a company to scale with growth, without investing in full-time resources before the infrastructure can support them.

Life sciences companies can leverage the talent and resources of FAO providers to help ensure their financial accounting and reporting needs are being handled appropriately. Until they reach a certain size and scale and make revenue, it’s difficult to apply or employ the necessary finance talent in a full-time capacity. Companies will likely move some finance and accounting functions in-house, as they become commercialized, but there still may be some facets that might make financial and operational sense to keep outsourced.

Management guru Tom Peters famously stated, ”do what you do best, and outsource the rest.” Increasingly, life sciences companies are focusing on their core competencies of developing or identifying drugs to license, innovating and managing their brand, while outsourcing noncore finance and accounting functions to trusted providers.

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